Traditionally, income distribution and monetary policy have been considered separate issues. However, this view has recently been challenged. The last few decades saw rising income inequality and slow ...

Traditionally, income distribution and monetary policy have been considered separate issues. However, this view has recently been challenged. The last few decades saw rising income inequality and slow recoveries after recessions, especially in developed countries. It is well established that recessions are particularly painful for the poor. Poor households have low saving and wage income is their primary source of funds. As wage growth is suppressed during recessions, poor households have to lower consumption and/or incur more debt in order to sustain their previous consumption levels. In developing countries where financial markets are underdeveloped, the poor suffer more because they do not have access to credit. Slack labor markets because of low job creation and rising unemployment are the other two factors exacerbating the plight of the poor. Thus, recessions are an important reason for rising inequality.